Number of businesses

IBISWorld estimates that the number of businesses will increase at a compound annual rate of 1.1% over the five years through 2022-23. The number of enterprises in operation each year is determined by the number of business start-ups and closures over the period. These are in turn determined by the prevailing economic conditions and lending activity in financial institutions. In particular, the availability of credit for entrepreneurs helps determine the number of new businesses that are set up. Just over three quarters of UK enterprises consist of four or fewer employees, many of which are sole traders. The number of business closures may also be affected by the availability of credit as well as the level of business profitability. The growth in the number of businesses for much of the period was mostly from the scientific and technical sector according to the ONS.

At the beginning of the five years through 2022-23, better economic conditions encouraged new start-ups. Low financing costs also boosted the number of businesses. However, these businesses have had to contend with greater political and economic uncertainty following the decision to leave the European Union. A generally lower exchange rate combined with depressed business investment and slow labour productivity growth have constrained the rate of growth in the number of businesses.

In recent years some industries have struggled to remain profitable in an environment of increasing costs, accentuated by an increasing National Minimum Wage, the introduction of the Living Wage and rising rent and business rates. Retail, restaurant and small businesses have been particularly affected by rising costs over the second half of the period, which has caused a number of enterprises to leave their respective industries. The number businesses increased at a subdued rate of 0.6% in 2020-21, to reach 2.8 million businesses because of the COVID-19 outbreak which has halted economic activity. The government's schemes which included loans to businesses, allowed the number of VAT-registered enterprises to still expand during 2020-21, however the rate in which they grew was less than the five-year trend. Despite this, a number of businesses failed as a result of the prevailing economic conditions and subsequent responses to the virus outbreak such as national lockdowns, social distancing measures, stay at home guidance and general fear amongst the population damaging demand for businesses. Subsequently, the number of businesses in the United Kingdom grew by 0.8% in 2021-22 and is projected to expand by 1.1% during the current year, to reach 2.8 million. This due to the easing of economic pressures related to the coronavirus outbreak, allowing the wider economy to reopen and stabilise. This was and is expected to continue to be facilitated through the improvement in severe coronavirus cases on the back of the vaccine roll-out. While the UK economy economy is expected to face many macroeconomic headwinds over the current year, inclusive of surging inflation, rising interest rates which could limit the extent of borrowing for businesses and rising energy prices, the number of businesses is still expected to expand.